Community banks withstand economic crisis

Despite the headlines and special reports forecasting financial disaster across the country, there is a different scenario playing out among smaller community banks.

Charis Patires

Despite the headlines and special reports forecasting financial disaster across the country, there is a different scenario playing out among smaller community banks.

Community banks are showing resilience to the changes in the market. They remain strong and relatively unaffected by the nation’s economic crisis simply because they didn’t invest in the subprime loans.

“While the financial markets and some of the large financial centers along with some banks are failing,” said Greg Gagnon, “it’s the community banks that are continuing to perform during this financial crisis.”

According to Gagnon, president and chief executive officer of Central Bank of Lake of the Ozarks, even though a number of large financial institutions have failed or been forced to sell, most banks are financially sound, especially those that have not used subprime loans.

“The one thing that the large financial centers and the banks that have failed have in common is they were making or securitizing a lot of subprime loans that were poorly underwritten,” Gagnon said. “We sold a majority of our mortgage loans in the secondary markets. The ones we kept in-house we did due diligence on underwriting the loans. Our loan portfolio is very strong and performing very well.

“Our asset quality is good because we have maintained a strong and consistent underwriting standard approach to lending. We did not engage in the highly publicized subprime lending that has resulted in loan losses and bank failures in the country.”

The government is putting together a treasury plan that is expected to help stabilize the financial market and bring back the liquidity necessary to allow mortgage financing investors, primarily Freddie Mac and Fannie Mae, to function properly, he said.

“The concept they are working on to put a big package together is the right approach,” he said. “The good news is the feds recognize the crisis, putting all the issues on the table and are dealing with the problem. As they arrange for sales, or takeover of failed financial institutions, it’s more of a takeover than a bailout. For those stockholders it is very painful, as it should be, so I look at it as more of a takeover and arranged sale.”

As the U.S. government works to build stability in the financial market, Gagnon says the lake market is expected to do well in the midst of the financial turmoil. The bank is processing commercial and home loans and, while home purchases have slowed, there is movement.

“Lake of the Ozarks will probably be impacted the least amount compared to other parts of the country. The infrastructure is being put in place to handle growth. As we come out of this, Lake of the Ozarks is going to continue to be a good place to live and work.”

The one thing consumers can take charge of is learning about how their banks operate, how much capital it has and how the institutions underwrite loans, Gagnon said.